Propositions 13/60/90
/If you’ve ever lived in California or owned property here, you know there are some significant propositions that have been voted in over the years which greatly impact property taxes and ownership. I remember as a kid when Prop 13 was on the ballot. While I wasn’t entirely sure what it meant, I did know that we were TOTALLY behind it and worked hard to get others to support it. All these years later, I understand why my parents wanted this proposition to pass, but I also see the impact that it’s had over 40 years on the state, the economy and the housing market.
The three most significant propositions we have in the state that impact home ownership, especially those who have owned their properties for a long time and seen a huge increase in value, are Props 13, 60 and 90. Let’s explore what they are, and how they impact our housing market and the economy.
Prop 13
What is it?
With Prop 13, property tax values were rolled back and frozen at the 1976 assessed value level. Property tax increases on any given property were limited to no more than 2% per year as long as the property was not sold. Once sold, the property was reassessed at 1% of the sale price, and the 2% yearly cap became applicable to future years.
When did it become law?
Prop 13 was voted in June 6, 1978 by nearly ⅔ of voters.
Why was it voted in?
Prior to Proposition 13, the property tax rate throughout California averaged a little less than 3% of market value. Additionally, there were no limits on increases for the tax rate or on individual ad valorem charges. (“Ad valorem” refers to taxes based on the assessed value of property. ) Some properties were reassessed 50% to 100% in just one year and their owners’ property tax bills increased accordingly.
As California’s real estate market value was exploding, so were the property taxes. This was creating an untenable situation for property owners.
What is the impact it has had?
Prop 13 has had an impact on every element of the state’s economy and real estate market.
Property Lock-in – Owners who have been in their home an extended time are reticent to sell and give up their tax rate, creating less inventory on the market.
Tax Disparity – Two properties valued at $4M could have extraordinarily different tax rates if one is newly purchased (and paying taxes based on the $4M value,) and the other has been owned for 40 years (and paying taxes based on annual increases of 1-2% from the 1976 assessed value).
Education Failures – as a result of decreased tax bases and related reductions in spending on education, California schools have gone from some of the top in the country to 48th in the nation.
State Infrastructure – there’s much debate as to whether or not Prop 13 is to blame for California’s antiquated and failing infrastructure. One can only assume that the reduction in property taxes over the years has had some related impact on infrastructure funding as well.
Prop 60
What is it?
Prop 60 gives homeowners over the age of 55 the option to transfer the assessed value of their current home to a replacement home if the replacement home is located in the same county, is of equal or lesser value than the original property, and purchased or newly constructed within two years of the sale of the present property.
Prop 60 can only be used once in a claimant’s lifetime.
When did it become law?
Prop 60 was voted into law on November 4, 1986
Why was it voted in?
Prop 60 helps to address the “lock-in” impact of Prop 13 by allowing 55+ owners to sell their homes, but keep their tax rate.
What is the impact it has had?
Prop 60 opened up some long-time owned property within counties. As these properties were sold, tax rates were increased to reflect the purchase price for the new owners. However, the lower tax rates of the original owners still resulted in reduced revenue for the state and counties.
Prop 90
What is it?
Prop 90 allows homeowners over the age of 55 to transfer the assessed value of their present home to a replacement home if the replacement home is located in another county, is of equal or lesser value than the original property, if the county of the replacement dwelling adopts an ordinance participating in the program.
Participating counties are: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne and Ventura.
A claimant can only use Prop 90 OR Prop 60 once in their lifetime. It is not possible to use both.
When did it become law?
Prop 90 was voted into law on November 8, 1988
Why was it voted in?
Realizing the limitations of Prop 60 mandating that the new property must be in the same county, Prop 90 sought to provide for more flexibility and opportunity.
What is the impact it has had?
Like Prop 60, Prop 90 has further opened up some long-time owned properties within counties. As these properties were sold, tax rates were increased to reflect the purchase price for the new owners. However, the lower tax rates of the original owners still resulted in reduced revenue for the both the state and counties.
For more insight into Propositions 60/90, including an extensive FAQ, visit the California BOE page on these props.
If you’re a current property owner in California, no matter when you purchased your home, you fall under these proposition guidelines. If you bought in 1995, Prop 13 locked in your tax rate at 1995 values. If you’re looking to sell in 2018 and you’re over 55, Props 60 and 90 give you the flexibility to take your tax rate with you, on a conditional basis.
Over the years, there have been many debates about reforming or repealing Prop 13. As of now, neither action has occurred, but it is reasonable to expect that this conversation will continue. Time will tell.
By Sally Lee
